More than thirty years ago, Ronald Reagan came to Washington intent on reducing taxes on the wealthy and shrinking every aspect of government except defense.
The new tax deal embodies the essence of Reaganomics.
It will not stimulate the economy.
A disproportionate share of the $858 billion deal will go to people in the top 1 percent who spend only a fraction of what they earn and save the rest. Their savings are sent around the world to wherever they will earn the highest return.
The only practical effect of adding $858 billion to the deficit will be to put more pressure on Democrats to reduce non-defense spending of all sorts, including Social Security and Medicare, as well as education and infrastructure.
It is nothing short of Ronald Reagan's (and David Stockman's) notorious "starve the beast" strategy.
In 2012, an election year, when congressional Democrats have less power than they do now, the pressure to extend the Bush tax cuts further will be overwhelming.
Worse yet, the deal adds to the underlying structural problem that caused the Great Recession in the first place.
Since Ronald Reagan was president, median hourly wages have barely budged, and America's vast working and middle classes have taken home a steadily smaller share of the nation's income (adjusted for inflation). The typical male worker today is earning less than the typical male worker thirty years ago.
Yet the richest 1 percent of Americans is now taking home a larger percentage of the nation's income than at any time since 1928. And we recall what happened in 1929.
Unless the vast majority of Americans has enough purchasing power to keep the economy going without going ever more deeply into debt, the economy will eventually go over a cliff.
That's what happened. By the late 1990s the middle and working classes could keep spending -- and thereby keep the economy moving -- only by adding debt. This strategy ended when the housing bubble burst in 2007.
Without their spending, there can be no buoyant recovery.
Yes, the pending tax bill will give America's middle and working classes slightly more cash next year. But only for one year. They won't spend it. They'll use it to help pay down their debts.
Will lower taxes on the rich spur them to create more jobs? Not a chance. Since 1980, Reagan's supply-siders have said lower taxes on the rich will trickle down to everyone else. Nothing could be further from the truth.
Look at history.
During the almost three decade spanning 1951 to 1980, when the top rate was between 70 and 92 percent, the average annual growth in the American economy was 3.7 percent.
Between 1983 and the start of the Great Recession, when the top rate ranged between 35 percent and 39 percent, average growth was 3 percent.
Supply-siders are also fond of claiming that Ronald Reagan's 1981 tax cuts caused the 1980s economic boom. There is no evidence to support this claim. In fact, that boom followed Regan's 1982 tax increase. The 1990s boom likewise was not the result of a tax cut; most of it followed Bill Clinton's 1993 tax increase.
Nor did George W. Bush's tax cuts trickle down. Between 2002 and 2007 the median wage actually dropped. And Bush's record of job creation was pathetic relative to Bill Clinton's, when taxes were higher. Under Clinton, America added 22 million net new jobs. Under Bush, barely 8 million.
So why are Democrats voting for Reaganomics?
They say they have no choice -- either vote for this or watch taxes rise on everyone starting January 1.
That Democrats have allowed themselves to get into this fix is a testament to either their timidity, obtuseness, or dependence on the campaign contributions of those at the top.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
The evidence that these handouts actually result in decent jobs for American workers is distressingly thin.
To understand the nature of unemployment in our country today, we must appreciate that a huge gulf has formed between traditional measures of business success and the actual well-being of working families. Traditionally, increased productivity was supposed to translate into increased wages for workers. But, as the Economic Policy Institute has documented, "from 2002 to 2007, productivity rose 11 percent but the hourly wage for high school and college educated workers fell." The only ones benefiting are those at the top. Timothy Noah recently reported in his well-regarded series on inequality at Slate that, "From 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent."
balance of article:
http://www.commondreams.org/view/2010/12/14-8
The con-game is starving the beast to kill Social Security and the Safety Nets. Americans need so badly.
So, let's really put it to the test. Carrot and Stick.
First, our objective, our goal as a nation is NOT to make individuals rich. Our objective as a nation is to make sure the entire population is healthy, well-educated, safe and prosperous. If the actions of individual fat cats hurt that overall health and prosperity, we need to make public policy that counteracts that. Aggressively.
So. We tax the rich at high rates, in order to make it far more attractive to keep more money in their businesses, in production, in workers. We tax all paper transactions above a certain amount to make it far less attractive to play casino capitalism. We tax outsourcing. We take the money and spend it on public works. We directly employ every worker who wants to work. The private sector won't. We as a nation will.
Next:
Carrot:
If a company does the following, it is NOT taxed:
1. Keeps the executive pay to rank and file pay at 25 to 1 or lower
2. Keeps the workforce at 95% American or better.
No tax.
Spend on social services, infrastructure, Single Payer, Green Tech, education and the environment. Hire workers directly who want to work. Use the tax code to encourage good paying jobs here, and no more hoarding. End privatization.
Instead, what Obama is doing is what's really bad for the country, his cheerleaders notwithstanding. He acts as if he doesn't know it. He must know it.
There are reasons that Obama is pursuing this approach to managing the national money flow, but those reasons are not what he discusses. Obama's agenda is not visible right now. What we're seeing is kabuki theatre. Obama's mind-meld with the GOP leadership is staged, with a specific outcome as part of the design, and with the full co-operation of the GOP.
We'll have to watch what Obama decides, how he acts, for us to determine what outcome will be.
In another post you said corporations pay trillions in taxes. Not so. The Federal government took in a total of 2.3 trillion last year, and corporations accounted for roughly 7% of that.
Our tax code is riddled with so many deductions, loopholes, writeoffs and outright subsidies, MOST corporations pay no tax at all. Exxon paid nothing last year, for example, on tens of billions in profit.
Why do you keep shilling for corporate America? Getting paid to do so?
Corporations have paid in Trillions. It may be over several years, at about $500 Billion a year, but they've paid in Trillions.
Do a review of the history. Have we ever cut spending, dollar for dollar, with those tax cuts?
No.
Never.
So it is physically, mathematically, logically and rationally impossible to credit those tax cuts with anything, until we control for deficit spending.
Until or unless the government is willing to cut spending in equal measure with those tax cuts, there is no way to attribute anything specifically to tax cuts. You have other variables to contend with, and deficit spending is a huge variable.
It is, in fact, the elephant in the room. The proverbial 800 pound gorilla.
In effect, when you cut taxes and borrow the money to offset the loss in revenues, you are doubling the money flow for that amount. You SHOULD be able to stimulate the economy in that case. At a minimum. It's like shooting steroids into the economy.
However, if it's done in a no-strings-attached manner, it won't be as effective as targeted tax cuts and targeted deficit spending would be.
Either way, the bottom line is that it has always been absurd to credit tax cuts with ANYTHING while we borrow trillions to make up for the lost revenues. That is simply ignoring THE key variable in the mix.
He or she collects consumer dollars and redistributes them upward to themselves. Business owners spend "other people's money" on THEMSELVES.
When government builds a school, a library, a museum, roads, bridges, etc. etc. it is spending "other people's money" for the good of everyone.
The private sector business owner doesn't redistribute money for the common good. He or she redistributes money for their own good.
They STILL fired eight million workers.
The Fed bailed them out to the tune of 3.3 trillion recently, and then another 600 billion.
They're STILL not hiring.
The rich and corporate America have received decades of tax cuts, and the economy has gotten worse for the rank and file. Productivity has gone up dramatically per worker, but our wages have fallen.
Stop the propaganda. Trickle down doesn't work. The rich pocket the difference in tax breaks, hoard it, or invest it overseas, chasing after cheap labor or derivatives.
NOT production.
Our history shows a stronger economy when tax rates are much higher.
It's the government, the feds alone suck Billions out of the economy each and every day.
States do too, but instead of $10 Billion, they may take $3 Billion. Every day.
How's that been working out? You need more?
WHo sells the S$P 500 everyday. Over time trickle down worked perfectly and I sure to the amazement of everyone it was Clinton who recognized first.
The fact of the matter is that high PERSONAL tax rates cause the owners to keep money in the company, which then must invest and pay higher wages to avoid high CORPORATE taxes. THIS is what leads to a strong middle class and jobs!